Bitcoin’s Digital Gold Narrative Reaching ‘Apex’ in Macroeconomic Uncertainty: Report
While halving dominated early conversations in Q1, since then coronavirus has taken over and significantly eclipsed the publicity around the event that is coming in about 25 days, notes the latest report from eToro and the TIE.
— The TIE (@TheTIEIO) April 15, 2020
COVID-19 along with the macroeconomic uncertainty has Bitcoin emerging as the alternative class and a hedging asset. Born during the 2008-2009 financial crisis that saw massive bank bailouts, inflation, and central bank intervention, in Q1 2020 we are yet again experiencing massive government stimulus packages and interest rates being slashed to zero.
“In this time of great macroeconomic uncertainty, Bitcoin’s digital gold narrative has reached its apex.”
As such, last month, Bitcoin and gold sentiment have been highly correlated with the large changes in sentiment that occurred in unison or within close proximity. Interestingly, still, BTC outperformed not only gold but also S&P 500 up until mid-March. Despite finishing the quarter at a loss of 10.45%, it outperformed the SPY who ended the quarter down 19.92%.
BTC tends to peak with central bank balance sheet growth
On March 12, the market experienced a massive sell-off that occurred in two successive steps. The second drop was “precipitated by automatic liquidations, imparted a long-lasting effect on the market structure,” said Sacha Ghebali & Anastasia Melachrinos of Kaiko.
This has BTC’s correlation to gold and the stock market soaring with markets more volatile than they were a month ago. However, government intervention and fiscal stimulus have the market starting to recover to the early March levels. Kevin Kelly of Delphi Digital noted,
“The backdrop for massive debt monetization is set and it appears all the usual suspects are making their way to the stage. Historical precedent is quite limited given Bitcoin’s relatively short lifespan, but it is notable that prior BTC cycles have tended to peak with major central bank balance sheet growth.”
And all of this is happening near halving. 2020 is already proving to be a turbulent year so far that had miners healthy profit margins turning red after the Covid-19 inspired sell-off. John Todaro of Trade Block explained,
“The network hash rate is closely related to miners’ profit margins. The hash rate increases as the number of resources, in aggregate, committed to securing the network through mining activities rises.”
“As resources dedicated to mining rise over time, the network difficulty increases, which drives efficiency gains in mining activity and/or increased mining costs.
As such, in order to maintain healthy profit margins for miners, a rising hash rate is typically needed to correspond with a rising Bitcoin price.”
But the decreasing hash rate and a decline in network difficulty moved them back into positive territory by the end of the quarter.
Over Q1, nearly all of the cryptocurrencies have been highly correlated, with the exception of Dash.
The report also touched upon the Bitcoin Cash halving which no one really cared about, Cardano’s overall market cap that fell 10x, and that EOS tweets are increasingly coming from the same accounts. The hack of the trinity resulting in IOTA being shut down for nearly a month also saw its long-term perception faltering.
While liquidations of XRP kept Ripple in the green, Stellar’s 50% token burn didn’t result in anything good for the price.
When it comes to the second largest network, Ethereum, a large part of its story, DeFi had a huge chunk of its growth being erased after Ether price crashed. The Black Thursday also forced Maker to shut down.